BÀI GIẢNG kế TOÁN QUỐC tế chapter 16 correction of errors

Chapter 16

CORRECTION OF ERRORS


Learning Objectives
1. Types of error in accounting
2. The correction of errors

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Types of error in accounting
• Errors of transposition, e.g. writing $381 as $318 (the
difference is divisible by 9)
• Errors of omission, e.g. receive supplier’s invoice for
$500 and do not record it in the books at all or some
sides only
• Errors of principle, e.g. treating capital expenditure as
revenue expenditure
• Errors of commission, e.g. putting telephone expenses
of $250 in the electricity expense account
• Compensating errors, e.g. both sales day book and
purchases day book coincidentally undercast by $500
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The correction of errors
Errors can be corrected using the journal, but only those
errors which required both a debit and an (equal) credit
adjustment. Consider the following example:

•Example
Accountant omits to record invoice from supplier for
$2,000.This would be corrected by the following journal
entry.

A transaction previously omitted.
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The correction of errors
•Example
Accountant posts car insurance of $800 to motor vehicles
account. Correct as follows.

Correction of error of principle.

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The correction of errors
• A suspense account is a temporary account that is
used in the following circumstances.
– The bookkeeper knows in which account to make the debit entry
for a transaction but does not know where to make the
corresponding credit entry (or vice versa)
– The credit is temporarily posted to the suspense account until the
correct credit entry is known
– A difference occurs in the trial balance caused by the incomplete
recording of the double entry in respect of one or more transactions
– The difference is recorded in the suspense account and included in

the trial balance, so restoring equality

• Any balance on a suspense account must be eliminated. It
is never included in the final accounts.

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The correction of errors
Example
Harry Perkins, sole trader, prepared his trial balance for the year
ended 30 June 20X5. To his dismay he found that debits
exceeded credits by $7,452. He has discovered the following
errors.
•Discounts allowed of $486 were posted to the discounts allowed
account as $684
•Credit sales totalling $7,500 had not been posted to the sales account
•The balance on the accruals account of $404 had been omitted when
the trial balance was prepared
•In respect of telephone expenses of $650, the only entry to have been
made was in the cash account.

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The correction of errors

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The correction of errors
With suspense accounts, you must think carefully about the
double entry. Provided you work logically through the
following steps, you should be able to tackle these fairly
easily.
Step 1. What is the correct entry?
Step 2. What is the actual entry?
Step 3. Calculate the entry needed to correct the error
Remember IAS 8 treatment of material errors, you may
need to adjust prior years (see Chapter 3)
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